The Problem with Regulatory Uncertainty

In the political climate of an election year, “regulatory uncertainty” has been raised as a reason to block or alter many of the environmental regulations proposed by the U.S. Environmental Protection Agency (EPA). The argument is that the length of time EPA takes to propose and finally promulgate new rules leaves the affected industries in economic limbo, uncertain of the ultimate compliance requirements and timeline. Legislators have blamed EPA rules for damaging the nation’s economic recovery. The typical regulatory process progresses from EPA announcing their intent to establish a new rule, collecting data and information to inform the decision-making, to proposing a new regulation and receiving public comment on the proposal, possibly making adjustments to the proposal based on public commenting, and issuing a final rule with specific compliance dates. During the process, the proposal and final rule goes through interagency review and must be signed off on by the Office of Management and Budget (OMB). OMB and the EPA may entertain meetings with representatives from affected companies, individuals, and industry groups. Public hearings can also be part of the process. For rules that get a lot of input during the public comment period, the entire process can drag on for years.

Currently, there are numerous EPA rules in the proposal stage. The ones getting the most attention include the greenhouse gas rule, the recently proposed soot rule, revisions to the court-remanded cooling water intake rule, and coal ash regulation. In the case of the coal ash rule, EPA actually co-proposed two options. Interestingly, the fundamental technical requirements for coal ash impoundments and landfills across the two options are virtually identical, but the regulatory authority under which each option is proposed causes timelines and costs to differ significantly.

In the meantime, companies have to navigate investment decisions predicated on what they believe the final regulations will look like, and their ability to recover costs. This is a huge problem for small companies and some manufacturing industries where profit margins are tight. Recall that some of the recent EPA rules are aimed at ALL boilers, including those used in industry and manufacturing. While we tend to automatically think of large coal-fired power plants as the target of these rules, there are numerous corollary industries affected, including a successful recycling industry that uses coal ash to improve the durability and strength of concrete among other important applications. Among the large power producers, the confluence of pending EPA rules is causing them to repower with natural gas or retire coal plants entirely.

On the environmental side, shutting down coal plants is a primary goal, and if regulatory uncertainty is causing that, green groups celebrate it. However, the problem with ongoing regulatory limbo is that it does nothing to put into place the environmental protections that are being sought in the first place. Environmental groups have recently filed suit against EPA to force the agency into a deadline for promulgating the coal ash rule. Coal ash recyclers have filed their own suit, as recycling has dropped off due to customers being worried about liability from a potential hazardous waste designation. The suit brought by environmental groups, if successful, would set a precedent that EPA would need to review regulations every 3 years. Can you imagine? The agency is struggling to complete regulations underway for years that they have been court-ordered to complete. Sound science and economic analysis will not survive a drive-thru-style regulatory system.

We need a regulatory system that is based on science, not ideology, and recognizes that compliance timelines greatly affect costs. We need a regulatory system that is forward-looking and assesses the cumulative effects of regulations both environmentally and economically. We should be concerned about the regulatory uncertainty for several reasons, but perhaps the biggest reason is that the process is broken. Some would even say hijacked.